GOP reaches balanced budget, tax cut accord

WASHINGTON -- Republican leaders in the House and Senate struck a deal last night on a seven-year plan to balance the federal budget, reduce taxes by $245 billion and cut nearly $1 trillion from Medicare, Medicaid, student loans and other social programs.

Republican-led majorities in the full House and Senate are expected to endorse the agreement easily next week.

The budget blueprint essentially ignores President Clinton's more modest plan to balance the budget in 10 years. But later legislation, putting the specific tax and spending cuts into effect, would be subject to a presidential veto.

"We have crafted a budget which first, and foremost, ratchets down the deficit to balance by the year 2002," Senate Majority Leader Bob Dole said in announcing the deal. He added that the plan would also put "more money in the pockets of American families" and provide "incentives for savings, economic growth and job creation."

None of the specific program cuts recommended in the budget blueprint are binding on Congress or Mr. Clinton, whose approval of the plan is not required. But the congressional leaders said they will strictly enforce the limits on spending set in each broad category.

"After decades of reckless spending, we are committed to making government leaner, more efficient and cost-effective," House Speaker Newt Gingrich said.

The budget deal provides the road map for reaching what Republican leaders say will be their crowning achievement: a leaner, more efficient, less intrusive federal government that frees Americans of the government debt that keeps interest rates high and threatens their economic future.

Many Democrats say the Republicans want to cut programs that primarily benefit the poor to pay for tax breaks for the rich.

"While we agree with the Congress on the need to achieve a balanced budget, there is a right way and a wrong way to do it," Leon E. Panetta, the White House chief of staff, said in statement last night.

The plan produced yesterday completes three weeks of hard bargaining and reflects a compromise between the House and Senate plans.

On the key issue of tax cuts, the House modified its target of $354 billion over seven years; the Senate agreed to expand its target of $170 billion. The House also agreed to comply with the senators' insistence that legislation making the cuts to assure a balanced budget be enacted first.

The size and type of tax cuts must be worked out in separate legislation. But almost sure to be included are proposals for a $500-per-child credit for most families and a 50 percent reduction in the tax rate on capital gains. Some smaller, targeted cuts to help families that adopt children and care for elderly relatives are also likely.

On the equally thorny issue of defense spending, the Senate yielded to House pressure to reverse a steady decline and provide the Pentagon with a boost in funds over this year's amount. The compromise plan calls for a $33 billion increase instead of the $67.8 billion approved by the House.

The two sides came to an easier agreement on proposals to reduce the growth of spending in Medicare and Medicaid, the two federal health care programs that make up the largest and fastest-growing share of the budget.

Their compromise demands that $270 billion in savings be wrung out of Medicare, which serves the elderly, and $180 billion from Medicaid, which provides health care for the poor.

No decisions have been made about how those savings would be achieved; that must come in later legislation. But those totals are so high that they will almost certainly require reductions in benefits and services, lower fees for doctors and hospitals, and higher premiums for elderly beneficiaries.

House and Senate negotiators also reached quick agreement on a $190 billion reduction in the general government category that includes all domestic social spending except the health and welfare programs. Some of those cuts are already under way through the separate appropriations process.

Mr. Clinton's 10-year plan for balancing the budget, which he unveiled in a surprise move last week, appears to have been largely rejected. Although congressional budgeteers paused a few days to examine Mr. Clinton's plan for the seeds of a compromise with the White House, they quit after learning that the president had based his figures on a more optimistic set of economic assumptions than theirs.

That meant that he was assuming some of the deficit would disappear on its own as economic growth swelled federal tax revenues, making the steep cuts proposed by the Republicans unnecessary.

Mr. Gingrich said last night, though, that Mr. Clinton's proposal had been "very helpful" to the GOP cause.

"He validated getting a balanced budget; he validated that you have to do something significant to save Medicare because the trust fund is going broke; he validated that it was acceptable to cut taxes while getting to a balanced budget; he validated putting pretty tight reins on domestic spending; and he validated not cutting defense," the speaker said.

On each of those points, Mr. Clinton sided with the Republicans over many in his own party, blunting what Mr. Gingrich called "the relentless attack of some of the more liberal congressional Democrats."